Bank Finance and Regulation Survey Taiwan I. Banks and Financial Institutions Supervision 1) Applicable laws and regulation regarding the control and supervision of banks and financial institutions. Banks. (i) Banking Act The Banking Act is the most important and fundamental law for banking activities and organizations in this country. It provides substantial regulations in respect of (1) The business allowed to be conducted by banks and the definition of each type of business. Each bank must obtain the approval for its business by the Ministry of Finance (MOF). (2) The type of banks, including commercial banks, professional banks, and trust investment Company. The business regulations, establishment requirements and restrictions for each. The MOF also promulgated administrative orders to regulate the establishment of the each type of banks. (?) (3) The requirement for setting up a bank. There is minimum capital requirement. The organization of bank must be company limited by shares and the share must be public offered. The bank must obtained approved of the MOF prior to establishment, and then apply for business license. (4) Business regulations, such as the minimum capital reserve required for deposit and liabilities (42), the ratio of assets against liabilities (44), and the requirement to allocate surplus and cash dividend (50).. Banks are prohibited to make loans to interested people without surety (32, 33). (5) Control and supervisory regulations. The government has constant and intense control and supervision over the banks. Banks is required to set up an internal control and audit system (45-1) and submit all business reports, financial reports and surplus allocation or loss allocation plan to MOF and Central Bank for review (49). MOF and Financial Supervisory Committee of Executive Yuan ( FSC ) may conduct examination and request all kinds of reports at any 1
time. The banks will be subject to censure, improvement order or even suspension of business or taking-over control or clean-up order if the bank violates law, charter, if the bank violates the law, charter or has financial or operational problems. (ii) Law of Central Bank Central Bank is the bank of the Nation and sometimes called the bank of all banks. The main purpose of the Central bank is to stabilize the financial market, regulate the currency and exchange rate. The substance of its regulation include: (1) The organization of Central Bank. A Committee is established as the main decision making mechanism. (2) The functions and purpose for Central Bank, which includes (i) the issuance of currency (13) (ii) circumscribed as banks for government international financial institutions (12) (iii) set up funds to help the economy (20) (iv) make loans to banks or cash checks (19), (v) hold the international monetary reserves, and undertake the over-all management of foreign exchange. (vi) adjust the demand for and supply of foreign exchange to maintain an orderly foreign exchange market.(33-35) (vi) for the purpose of monetary regulation, issue certificates of time deposits, savings bonds and short-term bonds, and may purchase and sell them in the open market. (vii) prescribe for banks a minimum ratio of their liquid assets to their various liabilities (25) (viii) may conduct examinations on all financial institutions nationwide. Other financial institutions. (i) Financial Holding Company Act In order to strengthen the sound development of the financial market, increase the synergy of financial institutions and consolidate the control and supervision of crossindustry financial institutions, the country promulgated the Financial Holding Company Act in 2001. The law requires a person or same affiliated person who has a controlling interest in a bank, insurance company and/or securities company shall apply to FSC for an approval to establish a financial holding company. Controlling interest means holding more than 25% of voting shares or capital amount or having the right to designate more the majority of the BOD of a bank, insurance company or securities company. The control and supervisory regulations under this Act includes: (1) The establishment of a Financial Holding Company must apply for FSC s approval and must meet certain statutory requirements, such as minimum capital and must offer share publicly. (2) Merger with, transfer all assets and liabilities to or assumes the assets and liabilities of, financial holding companies and other companies of Controlling Interest must apply for FSC s approval (18). (3) The dissolution of a Financial Holding Company by a shareholder resolution shall apply to FSC for approval (20). (4) When the Financial Holding Company loses its Controlling Interest, FSC may correct or revoke its license (21). 2
(5) Financial Holding Company may invest in Banks, Bills finance enterprises, credit card business, trust enterprise, insurance enterprise, securities enterprises, futures enterprise, venture capital investment enterprises and other foreign financial institutions approved by FSC. Investment in any other industry must apply for FSC s approval. (36, 37) (6) Financial Holding Company may not invest in real estate unless for its own use or obtain FSC s pre-approval. (7) FSC may proscribe Financial Holding Company s capital adequacy ratio and set the minimum or maximum of financial ratio and evaluation and calculation thereof. (40, 41) (8) Financial Holding Company shall establish internal control and audit systems. (51) (9) FSC may request the FHC to provide financial reports, transaction data or conduct examination on the business or financial or other items of FHC. (10)FSC may correct, order improvement, suspend partial or total business, dismiss GM, directors, supervisor or dispose shares or revoke license if a FHC violates the law, charter or does not operates well. (54) (ii) Securities Exchanges Act (iii)future Trade Control Act (iv) Bill Financing Control Act (v) Insurance Act (vi) Trust Act (vii) Central Reserve Insurance Act 2) Entities/ Authorities in charge of the control and supervision. (i) Financial Supervisory Committee of Executive Yuan (FSC) The Financial Supervisory Committee of Executive Yuan (FSC) is authorized to be in charge of the supervision control and examination of financial market and financial institutions according to the Financial Supervisory Committee Organization Law. There are four bureaus under FSC responsible for different business. 1. Banking Bureau The Banking Bureau is responsible for (i) supervision and control of Financial Holding Companies, banks, and the Taiwan branches or representative office of foreign banks or international financial institutions, and the recognition and control of financial asset management company, the supervision of the credit cards business and trust companies and trust investment companies etc. (ii) regulation the banking market, bond market (iii) the making and planning of relevant policies and regulations and enforcement. 2. Securities and Futures Bureau 3
The Securities and Futures Bureau is responsible for (i) The approval, control, supervision of solicitation or issuance of securities or public offering. (ii) The supervision of securities trade and exchange market (iii) Control and supervision of Securities Company and futures trade enterprise. (iv) Control and supervision of foreign investment in the securities market. (v) The supervision of the financial and business conditions of public companies. (vi) Control and Supervision of Securities Service Business, including 3. Insurance Bureau 4. Inspection Bureau The responsibilities for Inspection Bureau includes: i. Inspection, audit the financial reports of financial institutions, such as banks, financial holding companies, securities companies, future trade companies, and insurance companies. ii. The making, amendments and research of relevant inspection rules and regulations. iii. Tract the inspection reports and improvements of the financial institutions. 3) Activities under supervision and types of licenses available. Banks. Bank license in order to establish a bank, a company must obtain a banking license and a business license from FSC. (Banking Act 53, 54) Foreign exchange business banks which will assume the foreign exchange business must obtain a license and permission from Central Bank iii. Financial debenture issuance banks must apply with FSC if it intends to issue debenture Bill Financing business banks must obtain a license from FCS in order to do bill financing business Regular Banking business such as issue letter of credit, guarantee loans etc must first obtain the permission of FSC and write on the business license. Merger or consolidation of banks must obtain the approval from FSC. (banking Act 58) Investment in financial institutions, such as insurance, trust, securities companies etc, must apply with FSC for approval. (banking act 74) Establishment of foreign branch must obtain FSC and Central Bank s approval. Banking Act 27. Banks which will operate trust and securities business must obtain FSC s approval. Banking Act 28 Financial data service business (which manages the transfer of funds and liability liquidation and credit information exchange) must obtain license from FSC. Banking Act 47-3 Doing currency and credit card business must obtain approval from FSC. Banking Act 47-1. 4
Banking Act 42-1 Other Financial Institutions. i. Establishment of a Financial Holding Company must obtain license fro FSC. (6) ii. Merger, or transfer assets and liabilities and assume assets and liabilities to other financial institutions must obtain approval by FSC (18) iii. Dissolution FSC approval (20) iv. Investment in non-financial activities must obtain FSC s approval (37) 4) Non-regulated financial and banking activities. 5) Non-permitted financial and banking activities and/ or government monopolies. i. Banks may not make loans to interest persons without surety. ii. Commercial Banks may not invest in real estate unless for its own use iii. Banks may not collect funds by providing bonus, stipend, gifts or any other measure other than regular interest. (34) iv. Banks may not do business without the approval of FSC (22) v. Trust Investment Company may not do activities proscribed in Article 108 of Banking Act. II. Banking Activities 6) Different types of banking licenses. Activities permitted and prohibited under each of them. i. Commercial Banks Activities permitted include 1. to accept Checking Deposits; 2. to accept Demand Deposits; 3. to accept Time Deposits; 4. to issue Bank Debentures; 5. to extend short-term, medium-term and long-term loans; 6. to discount bills and notes; 7. to invest in government bonds, short-term notes, corporate bonds, Bank Debentures and corporate stocks; 8. to handle domestic and foreign remittances; 9. to accept commercial drafts; 10. to issue foreign and domestic Letters of Credit; 11. to guarantee the issuance of corporate bonds; 12. to guarantee domestic and foreign transactions; 13. to act as collecting and paying agent; 14. to act as agent to sell government bonds, treasury notes, corporate bonds and stocks; 15. to conduct warehousing, custody and agency businesses in relation to the businesses in the preceding fourteen items subparagraphs; and 16. to conduct other relevant business which may be authorized by the Competent Authority ii. Specialized Banks. 5
iii. Trust Investment Banks. Businesses which may be conducted by an Investment and Trust Company are as follows: 1. To extend medium-term and long-term loans; 2. To invest in government bonds, short-term notes, corporate bonds, Bank Debentures and listed stocks; 3. To guarantee issuance of corporate bonds; 4. To guarantee domestic and foreign transactions; 5. To underwrite and trade in securities for its own account or for customers; 6. To accept, manage and employ various Trust Funds; 7. To publicly raise mutual Trust Funds; 8. To manage various kinds of property under mandate; 9. To act as trustee for issuance of bonds; 10. To act as attester for the issuance of bonds and stocks; 11. To act as agent for issuance, registration and transfer of securities and distribution of interest and dividends thereon; 12. To act as executor of wills and administrator of estates of deceased persons; 13. To act as supervisor for the reorganization of companies; 14. To provide consulting services in connection with the issuance and raising of securities and to engage in agency services related to the aforesaid business; and 15. To conduct other relevant businesses which may be authorized by the Central Competent Authority. Investment and Trust Company shall not engage in the following transactions: 1.Acquisition of ownership of trust properties; 2.Creation or obtaining of any rights or privileges over trust properties; 3.Sale of its own properties or rights to trustors; 4.Other transactions related to the aforesaid three Subparagraphs; and 5.Any transactions employing Trust Funds and properties with the Investment and Trust Company's directors, staff members or third parties who have an interest in the Trust Funds operated by the Investment and Trust Company. 7) Procedures to be followed and requirements. 8) Legal structure admitted/requested for each of the different licenses. 9) Is there a Deposits Insurance. 10) Interest rate. 11) Sanctions. III. Banking Secrecy Laws 1) Is client s information protected? i. Banking Act 48 requires banks to keep confidential regarding customer s deposit loans or remittance and other financial information. 6
ii. Financial Holding Company Act 42, 43 FHC and its subsidiaries must keep confidential its customer s personal data and transactional information and other information and may not hinder the customer s rights and benefit. 2) The legal framework. 3) Sanctions. * * * * * The Lex Mundi member in this jurisdiction is Tsar & Tsai Law Firm Bank Finance and Regulation Practice Group 7